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Learning the Lessons: Part 4

Last week I promised readers some details of the scale of the failure at the HDC and UDeCOTT.

The failure is systemic and exists at every level.

“That is nothing less than scandalous and deceptive behavior from those we trusted with our national wealth. It is like doing a business plan to open a ‘Chicken and Chips’ outlet and leaving-out the cost of the chicken. Bogus.”

The Special Purpose Entities (SPEs) were established to achieve a more rapid rate of national development. The idea was that we, the public, would benefit from the ‘best of both worlds’, so to speak, in that the ‘best practice’ of the private sector would be used in the SPEs to satisfy the requirements of the public for better roads, housing or other goods or services.

Starting at the level of underlying purpose of these SPEs –

HDC was established in 2005 as the successor agency to the NHA. The target set in the 2002 National Housing Policy is for 100,000 new homes to be built in a decade, but that annual target was reduced in the first year to 8,000.

In the seven years between 2003 and 2009, there should have been an output of 56,000 new homes, but the total output claimed was repeatedly given by the PM and the Minister of Planning, Housing and the Environment as being about 26,000. In March, I publicly challenged the accuracy of those claims and the new MD of the HDC, Jearlean John, released revised figures – see http://guardian.co.tt/news/politics/2010/03/28/unc-claims-hdc-voter-padding-opposition-strongholds-marginals – which showed a total of 15,394 new homes built in the period. An annual average of about 2,200 new homes, about a quarter of the reduced target.

That is at least 10,000 less new homes than the HDC’s chiefs had been claiming. What trouble is this?! Now, at the same time as we thanked Ms. John for setting the record straight, just try to imagine the record-keeping and integrity of an organization which could repeatedly overstate its achievements in this fashion.

That is the scale of the problem.

UDeCOTT’s mission is to develop the structures that form part of Vision 2020 and which “…will be achieved in accordance with…commercially viable principles…” – see http://www.udecott.com/index.php/cc/cc_sub_level/C6. Those claims are equally baseless, since Calder Hart admitted under my cross-examination that only one of UDeCOTT’s many projects had been the subject of a feasibility test. Only one. That was the International Waterfront Complex and my further questioning revealed that the value of the land had been omitted from the equation. That is nothing less than scandalous and deceptive behavior from those we trusted with our national wealth. It is like doing a business plan to open a ‘Chicken and Chips’ outlet and leaving-out the cost of the chicken. Bogus. Our PM went to great lengths when he addressed the Senate on 13th May 2008 to point out that UDeCOTT’s projects were all approved by Cabinet, after a thorough review process – see http://www.ttembassy.org/051308.htm. Additional claims were also made as to the ways in which Cabinet monitored UDeCOTT’s operations. As I wrote in this column, early in my critique of UDeCOTT – There is either a sobering naivete or a lack of rectitude in the highest chambers in our Republic.

That is the scale of the problem.

In both cases, we are witness to fundamental dishonesty on a huge scale.

Moving on to the findings of the Uff Report –

Looking at the controversial Cleaver Heights project, at para 25.30, the Report states

“…The absence of a written contract was put in context in the cross-examination of Minister Dick-Forde when she confirmed advice from HDC to the effect that none of their large projects and none of the small projects either had a signed contract . It was subsequently confirmed that as at January 2009 HDC had 64 large projects ongoing and 591 small projects, none of which had a signed contract. Large projects were those over $50m in value. Thus, while there appeared to be no good reason why a formal contract was not signed between NHA and NHIC, it seems clear that to have done so would have been a highly unusual step and one which was presumably regarded, both by NHA and HDC, as unnecessary.…”

UDeCOTT was also involved in its own widespread and unconventional practices, namely ‘back-fitting’ of data, as described in the sidebar.

On the blighted Brian Lara Cricket Academy (BLCA), being built by Hafeez Karamath Ltd. (HKL), we are told –

Para 16.16 – referring to advance payments to the contractor –

“…As a result money was advanced in circumstances which do not appear to have been governed by any ascertainable rules and amounted effectively to very substantial loans to HKL. Such a procedure is quite unique in the experience of the Commissioners. It calls for explanation but none has been offered…”

Para 16.17 – referring to UDeCOTT’s accounting system –

“…UDeCOTT’s administration and recording of the payment process was “appalling” and required a great deal of detective work to get to the bottom…”

Para 16.21 – referring to UDeCOTT’s attempts to explain its management of the BLCA –

“…does not by any means explain why UDeCOTT staff had gone to such extraordinary lengths to ensure that HKL was paid as soon as the money became available; why UDeCOTT was seemingly so anxious to make payments substantially beyond the value of work carried out (and in circumstances where the contractor was already in default such that TAL had long since recommended termination); and why UDeCOTT chose to disregard the opinions of the appointed engineer (TAL)…”

Para 12.45, citing the work of MacCaffrey –

Of 79 Certificates issued for advance payments, 39 were wrong in relation to the sum for payment of advance payment, 60 were wrong in relation to the amount of advance payment made to date and only 4 out of 79 correctly recorded the advance payment and the amount of repayment.

UDeCOTT’s contemporaneous reporting of advance payment is materially wrong (i.e. under-reported) by tens of millions of TT$ for the vast majority of the duration of the project.

UDeCOTT decided to back-fit Payment Certificates in February 2008. Those back-fitted Certificates also materially under-reported the amount of advance payments made. All the back-fitted Certificates have been endorsed by at least two signatories and in some cases three.

Little wonder that UDeCOTT’s audited accounts have not been published since the end of 2006.

The Cancerous Cozy Consensus

Given the scale of the bobol revealed in this single Enquiry, one can only wonder what else is taking place at other SPEs. The relationships are so cozy that one seldom, if ever, hears of anyone being made to repay the monies stolen or even face the Courts. I am repeating my call that it is time for us to review the performance and proper role of the SPEs.

It might also be useful at this stage, for those of us who exist in the ‘comfort zone’ of private sector superiority to reflect on how seldom, if ever, we act against ‘White-collar’ crime.

SIDEBAR: ‘Back-Fitting’ of Financial Documents

One of the hidden practices of UDeCOTT which was revealed in the Uff Report was that of ‘back-fitting’ of payment certificates so that various erratic and unsupported payments could continue, all under the veil of accountability. For readers who are unfamiliar with this sort of practice or surprised that such could be the practice at the ‘best-performing SPE’, they might find it easier to understand if the colloquial phrase is used…Yes, ‘Ratchefee”…

We all are aware of our weaknesses as humans, moreso in a corrupt society such as ours, hence the need for strong procedures to limit temptation and opportunity for wrongdoing.

The irony here is that our attempt to escape the strict, slow Civil Service procedures has taken us into this bizarre place where all the rules are broken (the basic moral ones, as well as the private sector/professional ones) and no one can say what is the benefit, given that the elementary targets are never even achieved. That is the theme of this series, which is examining the ‘performance and proper role of the Special Purpose Entities (SPEs)’.

As a final point, please note that the SPE model is being strenuously interrogated all over the world.

I would like to thank you for the yeoman work that you have been doing bringing pertinent issues to the fore. A couple points to amplify/respond:

1. The Mendacity of public officials. I concur with you fully on this point. Trinbago is the ultimate consequence-free society and officials can tell the most galling untruths without being held accountable. I remember, I believe it was a couple years ago that an official of CAL said that it turned a profit due to sagacious hedging of the price of jet fuel, only to find out that the “hedge” was the government giving them a dollar for dollar subsidy for prices over a predetermined level. This official felt comfortable enough to mouth this garbage when the truth was easily verifiable. The Finance Minister and her didactive explanations as to what it means to break a deposit is also instructive in this regard.

2. Lack of transparency and detailed financial analysis. The Govt on the cusp of an election has committed itself to purchase Air Jamaica. This decision may have profound budgetary implications in the future. Where was the debate? What were the terms? Why will this succeed when there has been a track record of spectacular failure?

3. The SPEs. These arrangements are clearly unworkable. Beneath all the findings of the Report, one was underreported – Uff basically agreed with Hart’s contention that he was not bound to report to the line minister only to his board. this to me is the right interpretation but clearly untenable going forward as a matter of public policy. An example, ripped from the headlines, as they say. Suppose there is a Sports Co. and the Board decides to put up a flag at a cost of $1 million and this amount is within their discretion to approve. If there is a hue and cry about this expenditure. Who is accountable? The unelected Board? The elected Minister? If the Minister is, why have a Board? Age-old issue: you ought not to be accountable if you don’t have responsibility. Despite the entertaining bacchanal between Rowley and Manning, that was the essence of the dispute over UDecott. Rowley made a pertinent point in a parliamentary debate – can we say that SPE model has delivered more efficient, cost effective service and minimised the bugbear of bobol. With $2 million flags, $900m cricket stadium (multiple years overdue and at 3x the cost) and the bobol unearthed in the UFF Report, it could not be conceivably argued that this is the best way forward.